Tax Forum ends with working group to discuss business tax changes

Hundreds of guests and hours of tax discussion later, the Tax Forum has resulted in the establishment of a business tax reform working group, an agreement between the states to work together to harmonise states laws including payroll tax, and a potential lift in the tax-free threshold.

Other outcomes of the two-day Tax Forum, attended by business leaders, community groups, tax experts and politicians, was a crackdown on tax-free allowances for foreign workers amid complaints from unions about 457 visas being exploited, and the establishment of a $1 million think tank on tax reform, and an independent tax advisory board, to advise the Australian Taxation Office.

A working group led by Queensland Treasurer Andrew Fraser and New South Wales Premier Mike Baird have until the end of the year to compose a plan to streamline state taxes, following Fraser’s first-day proposal to harmonise payroll and land taxes.

A lift in the tax-free threshold to $21,000 would reduce the need for about 1.2 million people to file tax returns, although Swan says it will only occur when the Government can afford it. The Government had previously pledged to boost the tax-free threshold to $18,200 under its carbon tax package, which led to an effective rate of $20,500.  

There were hopes that Swan would announce a new loss carry back regime, as recommended by the Henry Tax Review, but this did not come to pass. Instead, a business tax reform group, to be led by Board of Taxation chair Chris Jordan, will release a first draft next month and final report in the first quarter of 2012.

The proposed changes – wherein business would be able to offset losses made in a particular income year against taxable income from the preceding year – were tipped by Treasury two years ago to cost $520 million. Tax experts have previously welcomed the idea, saying it would encourage more entrepreneurial activity and provide relief during difficult economic conditions.

The business tax reform working group will also look at “business tax responses to a patchwork economy and how to fund them.” 

Deepti Paton, tax counsel at the Tax Institute, had a mixed take on the forum, welcoming the announcement of the tax reform working group and independent think tank, but stating a preference for the establishment of an independent Taxation Reform Commission, which would lay out a blueprint for reform.

“We were a bit disappointed that harmonisation was the only agreement to come out of the state taxes session,” Paton says.

“We were hoping to get more action on scrapping the inefficient taxes.”

“The Federal Government does need to take a leadership role on that.”

Paton says the forum should be measured by what it could have achieved, rather than what people realistically expected.

“We hoped for a fair bit more than we got,” Paton says, despite some of the discussion being quite constructive.